According to the latest in a series of Adviser Snapshot surveys produced by Action Consulting “many firms are broadly following the contingent charging model they operated pre-RDR, typically 3% plus 0.5% pa”.
Same old, same old…
The survey – designed to specifically look at how firms are reacting to the implementation of RDR nearly ten months ago and the FCA six months ago – also showed that their charging structures are set relative to costs plus margin rather than anything more client specific.
Now I know/I would like to think most of you reading this will be working in a very client-centric business, with clients at the forefront of everything you do, but it is alarming that there are plenty of others that don’t.
For example, the better practices are those that offer a variety of different approaches to charging for services (see chart below) with a healthy 21% offering individually-priced services specific to each client. A further 24% separate out what is being charged as they can then offer the clients a choice.
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The interesting thing is how they calculated the level of fees.
“Over 70% of larger firms assessed their fee-basis by analysing the cost of providing those services and adding a margin for profit,” according to the survey’s author Philip Moore, a principal at Action Consulting. This seems a very sensible way of doing so.
“While just over 40% of smaller firms used the same approach, many such firms also either set their fees to approximate to their pre-RDR basis, or just used their judgement, initially, planning to review fee levels later in the light of experience.” This seems just as sensible an approach.
But, as Moore also pointed out: “It is interesting to note that none of the firms conducted any research with their clients on what level of charges might be reasonable.”
They are almost certainly working on the basis that a fee of £x across their existing and expected client numbers will pay the bills, make a profit and allow them and their clients to retire early. This also means they can target a specific client, with that client being one who has enough money to invest who can also afford the fees.
Bull Durham or…?
This all sounds grand and lovely for the big firms but 76% of the survey’s respondents have three or less advisers and, with the exception of a couple of large firms, the rest have between four and 10 advisers.
Can this size of firm function on the same charge-it-and-they-will-come basis? Not for very long as simply charging what they did pre-RDR will not be acceptable to clients as true transparency takes hold.
It will not happen overnight but as the FCA matures and gets through its review of independent and restricted advisory firms, and as clients get used to the increased competition for the management of their wealth, then firms of all sizes will have to join the party and make sure they offer clearer charging structures that offer real value for money.
